Walgreens and Express Scripts Mend Rift

JULY 24, 2012

Daniel Weiss, Senior Editor

The country’s largest pharmacy chain and its largest pharmacy benefit manager have come to a new agreement, which will go into effect on September 15.
Walgreens and Express Scripts have settled a dispute dating back to June 2011, clearing the way for patients whose prescription drug benefits are managed by Express Scripts to fill their prescriptions at Walgreens pharmacies. The agreement between the country’s largest pharmacy chain and largest pharmacy benefit manager (PBM) was announced on July 19, 2012, and will go into effect on September 15, 2012.

The companies had stopped doing business with each other on January 1,2012, due to an inability to agree to a new contract. At the time, Walgreens claimed that Express Scripts offered to pay too little in drug dispensing fees, and Express Scripts claimed that Walgreens demanded to be paid more than the company was paying other pharmacies.

Express Scripts customers filled 88 million prescriptions at Walgreens pharmacies in 2011, more than 10% of the 819 million prescriptions dispensed by the chain that year. Since the companies’ former contract lapsed, Walgreens sales have steadily fallen as have its quarterly profits. Express Scripts, by contrast, reported in May that it had held onto 97% of its clients, despite the departure of Walgreens from its network.

“I am pleased that Walgreens and Express Scripts have been able to reach an agreement that works for both parties and is consistent with our company's principles,” said Greg Wasson, president and CEO of Walgreens, in a statement. “We look forward to once again filling prescriptions and offering our health and wellness services as part of the Express Scripts network.”

The companies did not announce the terms of their agreement, but experts surmised that Walgreens made greater concessions given that its business had been affected far more seriously by the contract lapse. Pressure on Walgreens to make a deal was intensified by Express Scripts’ merger with Medco earlier this year; the 2 PBMs combined to make up more than 200 million prescriptions filled at Walgreens in 2011, or more than a fourth of the chain’s total.

Walgreens will still face a challenge in winning back the customers it has lost to competing pharmacy chains such as CVS and Rite Aid. CVS, which picked up most of Walgreens' lost business, has stated that it expects to hold onto half the business it has picked up from Walgreens since late 2011.

Representatives of community pharmacists pointed to the dispute as evidence that PBMs such as Express Scripts have far too much market power. “[T]his long-running dispute is emblematic of the uneven PBM/pharmacy ‘relationship,’” said National Community Pharmacists Association CEO B. Douglas Hoey, RPh, MBA, in a statement. “The fact that a mega-chain like Walgreens with the negotiating leverage of 8,000-plus pharmacy locations had prolonged difficulty reaching what it considers equitable terms with a major PBM makes obvious that the take-it-or-leave-it contracts that PBMs make to small business community pharmacies are that much more one-sided. This reinforces the need for pro-patient, pro-pharmacist policies—such as the Pharmacy Competition and Consumer Choice Act (H.R. 1971/S. 1058)—that advance a more level playing field.”